Wealth Guide: An easy guide to investors while investing globally - 7 factors to keep in mind

With rising income and wealth, India has seen a stable rise in remittances under the Liberated Remittance Scheme (LRS) that was introduced by the Reserve Bank of India in 2004.

Never seen before 2015, there has been a sudden burst in amounts being remitted, at an astounding growth rate of close to 80 pr cent year-on-year.

See Zee Business Live TV Streaming Below:

Travel, education and maintenance of close relatives staying aboard are the categories that dominate the composition of funds remitted while the capital account transactions like remittance for investments and deposits have been consistent throughout.

In the current scenario, remittances overall, have reduced but those for investments have continued to be on the upward streak.

The fact that global markets took a hit during this period, has encouraged resident Indians to take advantage of such a correction and start investing in other markets, if not build on their existing investments offshore.

Atul Singh – Founder and CEO Validus Wealth decodes why investors should diversify their portfolio globally:

Evaluate the opportunities in global markets:

The wealthy clients are customers hailing from technology and consumer durable companies. The rise in stock prices of some of the world’s largest companies over the last couple of years, has driven the investor’s aspiration to be a part of their progress.

In this age, with more information about global markets being available easily, investors have witnessed the growth opportunities available in global markets.

Thereby, increasing the importance of geographical diversification in an aspect of building a robust portfolio.

One must always keep in mind that even while investing in global markets they should not deviate from the basic principles to be followed.

A portfolio must be curated while being mindful of the usual parameters like the investor’s investment goals, investment time limit, risk appetite, liquidity requirements and many other parameters.

Importance of a healthy portfolio:

Asset allocation as per the market situation is a key for building a healthy portfolio. Let’s take an example to understand this. Due to the extremely low-interest rates globally, there are very limited options to choose from for debt allocation.

Now, any increase in global interest rates might result in capital erosion. Therefore, you must look for suitable alternatives for the debt allocation within a portfolio.

Emerging investment class:

When it comes to global investing, equities tend to be the preferred asset class for most Indian investors. We have observed the evolution of the domestic mutual fund industry, over the last two decades, as it became the preferred route for equity investors, especially for retail & wealthy investors.

Our belief, however, for global investments is that passively managed Exchange Traded Funds (ETFs) are a more efficient way to invest in equities.

This possibility is extremely popular, more so when it comes to developed markets. The assets under management for these ETFs are a demonstration to that.

The reason that it is appealing is the ease at which investments can be fulfilled, just like stocks. The expense ratios of these ETFs can range from 0.03% to 1.00% depending on the sectoral or geographical exposure and the brokerage to invest in these ETFs tend to be very low, similar to stocks.

The increased popularity of passively managed ETFs is how active managers have constantly been unsuccessful to outperform the markets over long time limits, especially in developed economies where markets are a lot more resourceful.

For more advanced investors, there are long-short funds accessible which do tend to give the investors the desired equity exposure, in a risk-adjusted manner.

Such funds are supposedly better prepared to cope with market instabilities since they are flexible enough to take short positions if they hurt the market or specific stocks.

A very important point to note is that since such funds take exposure to the market through simple or sometimes complex derivative market instruments, they tend to fall in a higher risk category.

Investors must be aware and understand the various risks associated with such funds before investing in them.

Alternative investment avenues:

Global financial markets are a lot broader for each asset class. This can be observed even more with concerning alternative investment avenues. These array from art, royalty discounting, legal litigation financing or even insurance.

Some of these alternative investments have a near-zero correlation to conventional equity or debt markets and thus are termed market neutral.

As unusual as they might sound, some of these have done exceedingly well and one can witness the value these investments add to a portfolio over a period and specifically during phases of turmoil.

As one may presume, alternative investments are considered a lot riskier compared to traditional asset classes like equity and debt because when compared to the latter, alternative investments tend to have limited liquidity.

Global investment platforms:

The heightened interest in global investing among resident Indians has seen the advent of various investment platforms enabling global investing in India over the last couple of years.

Most, if not all these platforms tend to interface which are enabled by an international broker at the backend.

These programs are typically very efficient in terms of pricing and execution, thus making the whole experience faultless.

One unique thing about most of these investment platforms is that majority of them largely provide access to the listed US market and only a few provide access to global markets.

Prominence of offshore funds:

Traditional investment avenues have also observed an increasing interest in global markets. There has been an increase in the number of mutual funds which invest in global markets, by method of feeder funds.

Essentially these funds invest in resources domiciled in regions outside India, which in turn invest in global markets.

Such offshore funds tend to have a significant track record in terms of performance and assets under management, which makes the whole scheme attractive, especially to retail investors who are keen on seizing global exposure with lesser investment amounts.

As previously mentioned, funds investing into US markets tend to dominate this space as well, though this seems to be changing in the recent past. The newly added structural layering in this add up some additional pricing to investors.

Verify the tax pyramid:

Another vital point investors should take note of while investing in global markets is the differentiated tax treatment of offshore investments, conditional to the investment product, structure and investment route.

The taxability in terms of time and rate, are usually different from what is relevant to domestic investments in the same asset class. It will be practical for investors to confer with their tax advisors, to cognise the finer details before concluding.

(Disclaimer: The views/suggestions/advices expressed here in this article is solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)